Prudential demerger to result in two FTSE 100 companies

Prudential demerger to result in two FTSE 100 companies

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For a lot of people, the Prudential is synonymous with the “Man from the Pru”, the friendly door-to-door agent who, for almost 150 years, collected insurance premiums from millions of Britons.

These days though, you are more likely to find the “Man from the Pru” in a fast-growing Asian market like Indonesia or Malaysia, with doorstep agents having been phased out in the UK in 2001.

Because this is a business that, more than a decade ago, pivoted away from its home market to focus on the bigger – as it saw it – opportunities in Asia and the United States.

It is a bet that has paid off. In Asia and the US, the Pru’s customer numbers have almost doubled since 2006, while its assets under management have multiplied eight-fold and its operating profits six-fold.

As a business, in that time, the Pru has become immensely more profitable and much more international.

This has led to growing speculation in the City that the Pru was less-than committed to the UK. The cynics said it retained its more mature UK business simply to generate cash that could be reinvested in those faster-growing global markets.

That argument will soon no longer be valid, as the Pru today announced it is breaking itself into two separate UK-listed and headquartered companies, both of which are expected to be members of the FTSE-100.

The first, M&G Prudential, will consist of the Pru’s existing operations in the UK and Europe, including M&G, the insurer’s fund management arm.

The second, Prudential plc, will comprise the Pru’s operations in Asia, the US and its nascent businesses in Africa.

Shares of the Pru have shot up by more than 5% on news of the break-up – which growing numbers of investors are thought to have been demanding.

The international business, Prudential plc, can look forward to a racier stock market rating as investors price in its stronger growth prospects shorn off its more mature European businesses.

Those growth prospects are indeed spectacular.

Mike Wells, the Pru’s chief executive, who will take that role in the demerged business, pointed out on Wednesday that Asia and the US have a population of 5 billion people, while accounting for $40trn worth of GDP.

He added: “In Asia, the working age population grows by one million every month, and these people are under-protected.

“The gap between the insurance cover that the people in the region have and what they need to maintain their family’s living standards is estimated to be £35trn.”

The growth prospects are no less dazzling in the US where the Baby Boomers, the wealthiest generation in history, are beginning to retire.

Mr Wells pointed out that, in the US, 10,000 people will retire each day during the next 20 years – creating huge demand for “income protection policies” that provide them with a decent income during their retirement.

The domestic business, M&G Prudential, can also expect a re-rating.

For the first time in years, it will not be competing for capital with international businesses perceived as having better growth prospects, but will be competing instead with local rivals for investment.

As a stand-alone European business, without the dazzle of American and Asian businesses, it will be easier for investors to compare it with the likes of Aviva and Legal & General.

The team running the business, led by John Foley, will also be keen to show that, just because it is based in Europe, this too is a business capable of growth.

The Pru’s biggest rival, Aviva, has been arguing for some time that where an insurance company is based is now less important than the products and services in which it specialises.

The numbers unveiled today bear that out – the businesses that will form M&G Prudential already have seven million customers in the UK and Europe and have some £351bn worth of assets under management.

In the next five years, Mr Wells pointed out, the UK asset management market, currently worth £7trn, is expected to expand by a further £2.5trn.

In continental Europe, the market is worth €14trn and is expected to grow by a further €3.5trn during the next five years.

Ultimately, though, M&G Prudential may be seeking comparisons not with the likes of Legal & General and Aviva, but more with Standard Life Aberdeen, which is reinventing itself as a specialist fund management group.

To that end, the Pru also announced today it was offloading a “back book” of annuities (products that guarantee a set income in retirement) worth £12bn and covering 400,000 individual policies, reducing its dependence on its traditional business of administering the retirement policies of customers.

It would be no surprise if, in due course, this business were simply renamed M&G – the name of the fund manager the Pru bought in 1999.

(c) Sky News 2018: Prudential demerger to result in two FTSE 100 companies